In a strong statement that suggests the Federal Reserve Chairman and his team have taken a turn on the future of interest rates. The Fed, after its two day policy meeting, said that it would be “patient” on the future of rate hike decisions. Chairman Powell said that “the case for easing rates has weakened somewhat,” so according to our expectations here at Classiarius, the economy slowdown is now confirmed. China, the US and perhaps Japan could see more economic weakness.
This is surely not a bad thing for the US as the unemployment rate is now about 3.9% and job creation is running at a solid pace. In this stage of the economic cycle, the 150,000 top 200,000 range for Non-farm Payrolls releases is solid, so a slowdown in the economy is an outcome that can be managed.
The Fed Chairman Jeremy Powell, now talking about a more dovish stance, surely puts President Trump and his team in the White House at ease. The benchmark rates of 2.25 to 2.5 percent remained unchanged after the meeting was wrapped up today. Despite being a lesser factor in the future, the Fed is still looking at the Brexit situation and more importantly, now focused on the economic slowdown in China. This China slowdown could hit Japan, and with the US slowing, could be a more worldwide issue to think about in 2020.
The cumulative effect of the internal and external developments has put the Fed in a wait-and-see mode that is frankly, in our view, the right place to be. More on this story in the coming weeks and months.